Background
Bristol Springs Custom Homes sued its insurer, Colony Insurance Co., and its claims administrator, Argo Group US, Inc., alleging breach of contract and bad faith. The dispute arose after Colony reserved the right to deny coverage for a lawsuit brought against Bristol by the Ritters. The Ritters ultimately prevailed, and Bristol filed for bankruptcy, which complicated settlement negotiations. The district court granted summary judgment to the Defendants on all claims.
The court’s reasoning
The court reviewed the Hayseeds claim de novo, requiring the insured to prove that its attorney’s services were necessary to obtain payment. The court found that Bristol’s refusal to drop a counterclaim and its failure to engage in negotiations after filing for bankruptcy meant it could not establish necessity. Regarding the statutory bad faith claims, the court affirmed the lower court’s ruling that the relevant West Virginia statutes apply only to third-party claims, not claims by an insured against its insurer.
What it means going forward
Insurance carriers in the Fourth Circuit are protected from Hayseeds damages claims where the insured fails to actively participate in settlement negotiations or where the insured’s own actions, such as filing for bankruptcy, impede the resolution process.